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Friday, December 14, 2007

EMI and Apple are leading the way to remove copy restrictions from digital music files. Will the rest of the market follow? Can they afford not to?

Hatred of digital rights management (DRM) is about as old as the digital music business that made it famous, or infamous if you see it that way. DRM, also used widely in DVD videos, although not to the same level of outrage, aims to prevent users from making unauthorized copies of digital music files they download from commercial music services, the most famous being Apple's iTunes.

Typically, the restrictions prevent you from transferring the music to other users or from burning more than a specific number of CDs. You are generally allowed to have more than one copy – music purchased on Apple's iTunes, for example, can be played on up to five computers and an unlimited number of iPods – but it still leads to inconveniences for users.

Music labels have found other ways to generate bad PR for themselves. Some music labels have attempted in some cases to add protection to music CDs by installing software surreptitiously when the disk is inserted in the PC. In one infamous case , Sony was discovered to be installing a "rootkit," which is a particularly abusive form of malware, on Windows PCs, when a music CD was inserted.

Music DRM always had some holes in it. For instance, it's generally possible to circumvent DRM restrictions by buying a CD of the music and "ripping" the tracks, which means converting them from the CD format to MP3 or some other format playable on PCs and music players. Such files will run without restriction.

One vendor, Lala , has created a CD-sharing network, allowing users to get CDs from others on the network for just $1. It might be wrong for those users to rip all the tracks and trade the CD to someone else, but of course that sort of thing is happening. But customers don't want to have to buy whole albums anymore; they want to be able to pick individual tracks.

And inconvenience isn't the only problem with DRM. As Apple's Steve Jobs explained in his famous essay on digital music from early this year, all DRM systems depend on keeping secrets. Once the secrets are discovered, as they often seem to be after some time, the DRM is compromised, and the vendor has to implement a new one. This is a technically unsatisfying solution, and Jobs suggests that it will forever remain a cat and mouse game between vendors and hackers.Ultimately, Jobs argues that DRM is a futile exercise because the same music labels that have insisted on it for on-line sales still sell unprotected versions on CD. Apple research indicates that the large majority of music on the average iPod is unprotected. Therefore there are too many ways for users easily to circumvent the protections. This is the secret that Lala discovered. (This may also be the crucial difference between music and video, as high-quality unprotected versions of movies are not generally available to consumers.)Now, one of the four major music companies has discovered it too. EMI recently announced that it would offer its music for sale on line, initially on iTunes, without DRM restrictions. Perhaps as a form of research, it will continue to offer the DRM versions at 99 cents, but also an unprotected version, encoded at a higher bit rate, for $1.29. iTunes will also offer an "upgrade" option for 30 cents per track to remove DRM from EMI tracks.

No word yet from the other major music companies (Universal, Sony BMG, Warner), but the pressure may be difficult for them to resist. They may wait to see if the revenues to EMI outweigh any incremental piracy, but this could be difficult to gauge in the short term. Piracy is hard to measure, and there will certainly be a boost in short-term revenue, at least from the upgrades that many users will buy. In the longer term, some artists will prefer to sign with labels that don't use DRM.

In the end, it's all about money. If Jobs is right, that it will always be too easy to get unprotected music, then DRM only inconveniences honest people – the same ones you can trust to buy unprotected music. At this point, the economic rationale for DRM will disappear, as will the labels' insistence on it.